What is Tail dependence in FRM Part 1?

The tendency of variables to experience extreme outcomes together even after ordinary correlation is controlled. Two variables can have zero linear correlation yet remain dependent, especially in the tails.

Tail dependence

FRM Part 1 glossary · Quantitative Analysis

Definition

The tendency of variables to experience extreme outcomes together even after ordinary correlation is controlled.

Tail dependence in plain English

Two variables can have zero linear correlation yet remain dependent, especially in the tails.

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Operational risk

Related FRM Part 1 terms

Bayes' theorem
Bootstrapping (term structure)
Central limit theorem
Copula
Exponentially weighted moving average (EWMA)
Generalized Autoregressive Conditional Heteroskedasticity (GARCH)
Heteroskedasticity
Monte Carlo simulation
Ordinary least squares (OLS)
p-value

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